Government R&D merely crowds-out legitimate research

Karen SELICK is - as usual - right on!

I have had experience in this, having helped a start-up try to launch a "green energy" service in 2002/3 right after PM Chretien flip-flopped and announced that Canada would support The Kyoto Accord. This was a tall order given the increase in heavy oil production in Alberta since the 1990 base period - but we figured there would be growing interest in energy efficiency and lots of government support due to the $6bn that was expected to be committed to implementing Kyoto.

It was just like Karen described and was a complete bust. Federal government departments like EnerCan fell over themselves promoting "energy efficient" ideas and hype - often with the implicit understanding that they "maybe" would offer incentives for various projects. I can recall at least 4 projects that might have become customers had they not been seduced away by government plums and promises like free consulting advice and "pilot project" subsidies. I think only 1 is still operating - even though they should have been quite attractive as energy prices skyrocketed and despite tighter "spark spreads" (the "spark spread" is the difference between energy prices and wholesale electricity prices. It indicates the substitution potential for "net metered" power and the "cost advantage" wedge between the 2 energy sources).

Also we attempted to approach operations in the North West Territories (NWT), as we figured we only had to compete against "dirty diesel" power - but their was virtually no interest - as more than 60% of "economic activity" is not actually market-driven work. Most activity is all driven by government transfers - Healthcare, Education, Welfare, Aboriginal Government (most reserves have 50%+ unemployment if measured in the traditional sense, except for government jobs. Technically they are not in the "labour force" and as housing and utilities cost are free or heavily subsidized they merely supplement their welfare payments with traditional hunting, fishing or guiding activities. These are the only "jobs" and are seasonal.) Many men leave and become itinerant workers by taking jobs in the south "remitting" their earnings back to their families. Sometimes a mine opens nearby and they can "commute" (although it may be 100's of kilometers). Given such a fragile "real business" economy - and despite Greenhouse Gas emissions that were far in excess of 1990 levels, the Government of NWT was allowed to ignore the Kyoto Accord limits!

Needless to say, the only remaining incentive was "moral suasion" - which normally came with a big grant and many strings attached (who to hire, what to buy, where and how). Not to mention fighting the perpetual requirements of government administration - who seemed sustained by a never-ending supply of coffee-breaks and meetings.

[Update: Nov 1, 2008 - A few responses have made it into the "Letters" section over past week - have been posted. This one from a retired Business Prof repeated the "public policy" response. But the most self-serving came from Claire M. Morris, president and CEO, Association of Universities and Colleges of Canada. She repeated research by economist Edwin MANSFIELD that publicly funded research has generated returns of between 28-50% - worth some $60 billion in 2007. ]